Stagnant US exports to Cuba belie fair's optimism

Article by: PETER ORSI

Associated Press

November 10, 2012 - 9:37 PM

HAVANA
- Kellogg's. Gatorade. Hormel. Hunt.

Many of America's best-known brands were on display at a Havana exposition center this past week as representatives hawked some of the few U.S. products that can legally be exported to Cuba, thanks to an exception to the U.S. embargo allowing cash-up-front sales of food, agricultural goods and medicine.

But cold numbers belie the enthusiasm on the convention center floor. Cuban purchases of U.S. goods have plunged as the island increasingly turns to countries like China, Brazil, Vietnam and Venezuela, which offer cheaper deals, long-term credits and less hassle over payment and shipping.

"The pattern that we see is it's just continuing to either be lower each year, or if it does increase, it's just not a lot at all," said John Kavulich, senior policy adviser to the New York-based U.S.-Cuba Trade and Economic Council. "No executives should be going to a travel agent and buying a ticket to go down to Havana thinking that there's going to be a change."

U.S. sales of food and agricultural commodities to the communist-run island began more than a decade ago with the Trade Sanctions Reform Act enacted in 2000 under President Clinton. Modest sales of $138 million the following year rose steadily to a peak of $710 million in 2008, according to statistics calculated by Kavulich's group.

The value of U.S. exports to Cuba has since plummeted to just over half that last year at $358 million. It was $250 million through the first six months of 2012, with no sign of improvement.

It's been a tenuous trade from the beginning, partly due to U.S. rules requiring cash payment before goods can even be shipped. Payments must be made through third-party banking systems that take a hefty cut of each transaction, besides the fees levied on multiple currency swaps. Shipping is complicated by U.S. embargo regulations. Moreover, the PR value of buying Made In America faded for Cuba as it became commonplace to see Coca-Cola in tourist hotels and Miller beer on store shelves.

So when a plunging global economy pulled Cuba down with it five years ago, Havana had every incentive to hunt for a better deal from friendly nations where government-run companies offer better terms and often won't complain publicly about rolling over late payments. Even private-sector companies in those countries may be more pliant, counting on guarantees by their governments.

"Cuba can still never beat the U.S. for many of the products — not all, but many," Kavulich said. "But when you add into the equation the lack of ability to directly have payment terms, the inability to use more efficient transportation systems between the two countries and the lack of political benefit, then the Cuban government will turn elsewhere."

As the fair opened this week, state-run food purchaser Alimport calculated it will spend $105 million more than necessary on U.S. imports due to unfavorable credit terms, currency exchanges and logistical losses in shipping.

"Since vessels from other countries that dock in Cuban ports must wait six months to go to the United States, the shippers charge high freights," Alimport vice president Eidel M. Mussi Velazquez said.

The company projected $440 million in U.S. purchases this year, well off the $960 million reported in 2008. The Cuban statistics don't compare directly to the Trade Council's since they apparently factor in the extra expenditures, but they trace the same depressed pattern.

By comparison, according to Cuban figures for 2010, the most recent year available, commercial trade with Venezuela nearly doubled from the previous year to a little over $6 billion. Chinese trade was still down from pre-crisis levels but trending upward to $1.9 billion in 2010.

While purchases of some U.S. goods have held steady, such as poultry and soybeans, others have tanked, including branded processed foods and grains.

The Spartan booth manned by Kevin McGilton, vice president for sales of Arkansas-based Riceland, was a case in point.

U.S. rice exports to Cuba totaled 20,000 to 30,000 metric tons a year before the economic crisis, but were zero last year, he said. Vietnamese government rice companies have long beat out U.S. suppliers by offering "broken" rice that doesn't look as pretty as U.S. rice but is cheaper. The country also has been extending multiyear credit terms.

Cuba "didn't have the hard currency to pay cash in advance, which is what they have to do with U.S. companies," McGilton said, adding that the only promising leads he had during the trade show this week came from other countries, such as Mexico.

Still, those doing business with Havana kept up a cheery tone at the fair, which included 500 exhibitors from overseas and ended Saturday.

The pavilion that housed U.S. delegations bustled as workers in matching T-shirts dumped fistfuls of Reese's Peanut Butter Cups into the hands of conventioneers and handed out canvas bags stuffed with Skittles candies. Cubans took turns posing for pictures with a person dressed as an oversize Hershey's chocolate bar.

Conventioneers praised Alimport for professionalism and savvy, and played down the importance of the credit restrictions.

Richard N. Waltzer, president of Procurement Systems Inc., said a recent U.S. policy allowing Cuban-Americans to send more money to islanders has increased their ability to purchase the U.S. brand names his company distributes.

PSI's Cuba business has grown 30 percent a year for the last decade, and Waltzer was optimistic about Cuba's expanding tourism industry and growing small private enterprise under President Raul Castro's reforms.

"They're modeling their new economic model after Vietnam and China, so in the future it's opening up for capitalism," he said. "And bringing in these great American brands, I believe, is going to take it to the next level."

Todd P. Haymore, secretary of agriculture and forestry for Virginia, which shipped $65 million in agricultural goods to Cuba last year, said the island is a consistent top 15 market.

But businesspeople back home see bigger possibilities if embargo rules are simplified.

"They feel like you might lose out on a sale or capturing additional sales because of these additional fees, additional turns of currency. ... Every time you go from one country to the next there's always a loss," Haymore said. "Someone's gaining a piece of that pie that's not going into your back pocket."

Those at the fair were also jockeying to be in position for an unknown future date when the U.S. sanctions might disappear altogether.

"Cuba is becoming a more and more important market for U.S. companies. ... Everybody wants to have some kind of presence," said Hector Rainey, managing director of Intervision Foods of Atlanta. "If something changes all of a sudden, they have an angle here."